The Stoler Report – Alternative Lenders: The Most Influential Players for Real Estate

♪ [THEME MUSIC] ♪>>MONEY, PEOPLE NEED MONEY FOR REAL ESTATE, SO WHO IS PROVIDING IT? THE BANKS, THE INSURANCE COMPANIES? IT’S A GROUP OF INDIVIDUAL ENTITIES CALLED PRIVATE EQUITY FUNDS. THEY ARE GIVING IT, SO TODAY I HAVE ASSEMBLED THIS GROUP OF LEADERS AND FINANCIAL EXPERTS TO TALK ABOUT WHERE THE MONEY IS, WHAT ALTERNATIVE LENDERS ARE DOING. MY GUESTS INCLUDE JOSH ZEGEN CO-FOUNDER AND CO-MANAGING DIRECTOR AT MADISON REALTY CAPITAL. ROBIN SORID, WHO IS THE CO-FOUNDER AND ALSO CO-MANAGING DIRECTOR AT G4 CAPITAL PARTNERS. PETER SOTOLOFF, WHO IS ALSO CO-FOUNDER AND THE CHIEF INVESTMENT OFFICER, MANAGING DIRECTOR AT MACK REAL ESTATE CREDIT STRATEGIES. AND LAST BUT NOT LEAST, COMING IN FROM BOCA RATON, FLORIDA, TONY FINEMAN WHO IS THE MANAGING DIRECTOR FOR EAST COAST ORIGINATIONS AT ACORE CAPITAL. HAS IT BEEN THIS COMPETITIVE?>>THERE HAVE BEEN TIMES WHEN IT’S BEEN THIS COMPETITIVE. I WOULD SAY THIS IS AN EXTREMELY COMPETITIVE TIME NOW.>>IS IT THE BANKS? IS IT YOUR FELLOW COMPATRIOTS OVER HERE?>>THERE IS A TON OF CAPITAL IN OUR SPACE TODAY AND I THINK THERE IS PLENTY OF DEALS BUT THERE IS A LOT OF CAPITAL CHASING THE DEALS.>>JOSH SAID THE CAPITAL IS OUT THERE BECAUSE THE EQUITIES ARE NOT BEING USED. WHAT WERE YOU TRYING TO SAY?>>THE EQUITY MARKETS HAVE BEEN NOT MUCH GOING ON IN THE EQUITY SIDE OF THE BUSINESS AND PART OF THAT IS BECAUSE TRANSACTION VOLUME IS DOWN BECAUSE THERE HAVE BEEN SO MANY DEBT FUNDS AND THE NUMBER OF DEBT FUNDS ARE PEOPLE LOOKING TO INSTEAD OF SELLING PROPERTY, — EQUITY, RECAPTURE AND HOLD LONGER RATHER THAN SELLING TO A MARKET THAT IS SO-SO. WE ARE SEEING THAT IN OTHER PARTS OF THE MARKET.>>WHEN YOU HEAR SOMEBODY LOOKING TO TAKE MORE CAPITAL OUT, IT REMINDS ME OF THE 2006-2007. WHEN PEOPLE TAKE TOO MUCH MONEY OUT, THEY REALLY ARE — THEY DON’T LOOK AT THEIR PROPERTIES AS WELL.>>I HAVE BEEN THROUGH A NUMBER OF CRISES INCLUDING THE MOST RECENT 10 YEARS AGO. I THINK I WILL DRAW SOME CLEAR CONTRASTS. I DO BELIEVE THERE ARE A NUMBER OF NEW DEBT ENTRANCE TO THE MARKET TYPICALLY HAPPENS WHEN THOSE PARTIES CAN’T FIND EQUITY DEALS THAT MAKE SENSE AND THEY VIEW IT AS A SAFER OPTION. UNLIKE THE PRIOR CRISIS WHEN YOU HAVE A MISPRICING OF RISK OVER LENDING, MISMATCHING OF ASSETS AND LIABILITIES, THE EXCESSES WE SAW IN THAT PART OF THE FINANCIAL CRISIS ARE NOT HERE TODAY. I WOULD SAY WHAT HAS HAPPENED IS YOU ARE SEEING BASICALLY A RACE TO THE BOTTOM IN SPREAD. YOU CAN’T BROADBRUSH THAT IN THE MARKET WITH ALL TYPES OF LENDING FOR CONSTRUCTION, HEAVY TRANSITIONAL TO MODERATE TRANSITIONAL VERSUS LIGHT TRANSITIONAL. THERE IS A VERY WIDE RANGE. I THINK YOU HAVE TO DRAW DISTINCTIONS BETWEEN WHAT IS PERCEIVED AS THE DEGREE OF DIFFICULTY AND THE BUSINESS PLAN EXECUTION.>>ARE WE SEEING MORE FAMILIES GO IN. AS I WAS SAYING A COUPLE SHOWS AGO, THE FIVE MAJOR NEW YORK FAMILIES– ARE WE SEEING FAMILIES SAYING THEY SHOULD GET MORE INVOLVED WITH THIS. THE FISCHER BROTHERS ARE INVOLVED, YOU KNOW ARE AFAR.>>YOU ARE SEEING A LOT OF ENTRANCE INTO THE MARKET AT WHAT I THINK IS DEEPER IN THE CAPITAL THAN GUYS LIKE US WILL GO BECAUSE THEY ARE HAVING A HARD TIME FINDING EQUITY YIELDS THAT WILL GET A RETURN ON. THEY WILL LEND 85 OR 90%, WHILE I CAN’T FIND EQUITY DEALS.>>I THINK WHAT WE ARE SEEING. WE ARE SEEING A LOT OF FAMILY OFFICES SITTING ON LIQUIDITY SAYING CAN WE PARTICIPATE? CAN WE TAKE THE LAST OUT PEACE. PEOPLE WILL BE OPPORTUNISTIC AND SOMEWHAT AGNOSTIC. IN TERMS OF THE NEW YORK MARKET, I THINK THE NEW YORK MARKET IS DIFFERENT THAN WHAT WE ARE SEEING NATIONALLY AND THE NEW YORK MARKET BECAUSE OF THE INFLUX OF CAPITAL, IT IS A RACE TO THE BOTTOM IN TERMS OF PRICING AND SPONSORS. SOME SPONSORS THAT SHOULD NOT BE GETTING DEALS DONE STILL ARE. I DON’T THINK ANY OF US ARE FINANCING THE SPONSORS. YOU WILL SEE SPONSORS WHO HAVE 2% OF THEIR OWN CAPITAL AND ARE DOING $200 MILLION PROJECT. THEY HAVE A GOOD CHANCE OF GETTING CAPITAL BECAUSE THERE IS SO MUCH COMING INTO THE MARKET AND THAT’S WHAT WE THINK IS THE SCARIEST PART AND IS THE ONLY HANGOVER FROM THE PRIOR CREDIT CRISIS WHERE WE SAW VERY LITTLE CHECK ON WHAT VALUES WERE.>>I HAD SOMEONE FROM THE CARLYLE GROUP THAT HE PREFERS TO DEAL WITH ALTERNATIVE LENDERS BECAUSE IT’S EASIER. YOU DON’T HAVE — YOU ARE EASIER TO DEAL WITH.>>THE IMPLICATION THERE IS THAT WE ARE CUTTING CORNERS. TO ME WHAT IT IS IS THAT REGULATED BANKS AND FINANCIAL SOLUTIONS CAN’T MAKE — ALWAYS MAKE RISK DECISIONS TO LOOK PAST SOMETHING BECAUSE THEY ARE STUCK.>>I THINK THE COMMENT WAS SAYING THAT I HAVE TO GIVE THE SAME DOCUMENTATION BUT I DON’T ALWAYS NEED EVERYTHING IN CLOSING.>>THERE IS TOLERANCE IF YOU THINK YOU’RE NOT TAKING A RISK BY NOT GETTING IT.>>BECAUSE THE INDUSTRY GREW THERE IS DIFFERENT SHADES OF THE ALTERNATIVE LENDING UNIVERSE SO YOU HAVE SOME AND WE ARE FOCUSED ON SPECIAL SITUATIONS OR CONSTRUCTION, THERE ARE SOME THAT ARE LIGHT TRANSITIONAL THAT WILL USE A CLO FACILITY AND THAT BOX IS NOT A BANK, BUT IT’S MORE OPEN. IT DEPENDS ON HOW THE DEBT FUNDS ARE LEVERAGING.>>I ALSO THINK THE POINT IS YOU CAN MAKE A DECISION TO TAKE A RISK THAT A BANK MAY NOT BE ABLE TO TAKE TO CLOSE. THE DECISION IS NOT TO WEIGH SOMETHING YOU THINK IS IMPORTANT.>>I WAS TALKING MORE ABOUT –>>WE DO HAVE FLEXIBILITY. THERE IS ALWAYS A SURPRISE. THERE’S A MISCONCEPTION ABOUT WHAT PRIVATE CAPITAL IS. WE WANT THE SAME DOCUMENTATION BUT WE JUST WANT TO BE MORE NIMBLE OR ABLE TO ASSESS THE ASSETS AS OPPOSED TO JUST THE ASSET CLASS. BECAUSE WE ARE BACKING UP TO SECONDARY FINANCING, WE HAVE SOME WINDOW BUT WE DO NEED THE SAME DELIVERABLES AS A BANK WOULD NEED ULTIMATELY. WE ALSO HELP THE BORROWER. WE DON’T GIVE THEM THE LIST AND SAY WE NEED THIS BY X DAY. WE HELP THEM CREATE ALL THE FINANCIALS.>>LENDER LIABILITY. [LAUGHTER]>>YOU ARE LEVERAGING THE LOAN. YOU ARE TAKING IT TO ANOTHER INSTITUTION TO MAKE SURE THEY HAVE THE CORRECT DOCUMENTATION.>>BUT WE ALSO DON’T HAVE THE LUXURY OF JUST HAVING BORROWERS WHO HAVE A PACKAGE READY TO GO. I THINK IF WE ONLY TARGET A GROUP OF BORROWERS WHO HAVE AN INSTITUTIONAL PACKAGE BUT ONE PRIVATE CAPITAL, YOU WILL LIMIT.>>SOMEBODY COMING TO YOU, THEY WORK FOR A COMPANY FOR A COUPLE OF YEARS AND LEAVE AND THEY WANT TO START THEIR OWN BUSINESS. HOW DO YOU MAKE YOUR DETERMINATION THAT YOU LIKE THAT PERSON AND YOU WILL BET ON THAT HORSE?>>WE DON’T. WE’RE VERY SPECIFIC ON WHO WE’RE DOING BUSINESS WITH. WE ARE NOT LOOKING TO — THERE IS ONLY DOWNSIDE IN LENDING. OTHER BUSINESS PLANS HAVE THAT TYPE OF MENTALITY WHERE THEY MAY BE MORE FLEXIBLE. WE STICK WITH PEOPLE THAT ARE KNOWN WITH ASSETS. THE OTHER THING FOR A LENDING SHOP, FOR ALL OF US IT STARTS WITH THE REAL ESTATE. IS THIS AN ASSET THAT IF TIMES GET IN TROUBLE IF THERE IS A DISLOCATION OR CORRECTION, WOULD WE WANT TO WORK THROUGH THOSE ISSUES AT THAT BASIS, PERHAPS UP TO AND INCLUDING ANOTHER BUSINESS PLAN. THAT IS SIMPLE AND AS BASIC AS IT GETS.>>IF YOU ARE NOT HAPPY WITH THE ASSET GOING IN, YOU SHOULD NOT DO THE LOAN. WE ARE NOT AN OPPORTUNISTIC LENDER. OUR DOCUMENTS ARE SET UP, EVERYTHING IS SET UP THAT IF THE WORLD CHANGES OR OUR SPONSOR FAILS, WE WILL TAKE BACK THAT ASSET. WE DO TAKE CHANCES ON NEW SPONSORS BUT WE WON’T TAKE CHANCES IN A VACUUM. IF WE HAVE A SPONSOR WHO DOES NOT HAVE THAT EXPERTISE, WE WILL HELP PAIR THEM WITH WHO WE KNOW HAS AN EXPERIENCE TO EXECUTE ON THE BUSINESS PLAN. OR OTHER CONSULTANTS. AND SO WE WILL SEE NEW SPONSORS WHO ARE ASSET DRIVEN. WE’LL MAKE SURE IF THAT SPONSOR DOES NOT HAVE THE EXPERIENCE THAT WE WILL BRING A TEAM TO THEM SO THEY CAN EXECUTE.>>TALKING ABOUT ASSET DRIVEN TODAY, WE HAVE A VARIETY OF ASSETS. ONE OF THEM IS THE CATEGORY PEOPLE ARE SAYING IS THE DEBT ASSETS. WHICH IS RETAIL. I THINK RETAIL IN SPECIFIC MARKETS MAY BE HURTING. IF YOU TAKE RETAIL, IT IS VERY STRONG.>>I THINK IT HAS BEEN PAINTED WITH AN EXCEPTIONALLY NEGATIVE BRUSH AND WE FRANKLY, YOU WILL SEE THIS, WE HAVE NO RETAIL EXPOSURE IN OUR LENDING BOOK, BUT I DO BELIEVE THAT OUR BUSINESSES DO NOT TAKE UNDUE RISK WITH OUR PROFILE. I THINK GREAT FORTUNES WILL BE MADE WORKING THROUGH AND ALREADY ARE THROUGH THE REDEVELOPMENT OF THAT. AS FAR AS THE LENDING BUSINESS WE RUN, WE WILL HAVE SOME RETAIL PART OF A MIXED USE VERSIONS. WE PUT TOGETHER THE CONSTRUCTION LOAN ON 20 TIMES SQUARE. THE NFL EXPERIENCE.>>HERSHEY’S MADE THE RETAIL –>>WE HAVE HAD FOR A LONG TIME NEGATIVE VIEWS EVEN BEFORE IT WAS WATERCOOLER TALK ON RETAIL AND THAT’S EXPRESSED IN OUR POISITIONS IN CREDIT PERSPECTIVES. THAT NOT TO SAY GREAT FORTUNES WILL BE MADE FIGURING ALTERNATIVES ON THE EQUITY SIDE TO REPURPOSE RETAIL.>>THERE IS A LOT OUT THERE. GREAT FORTUNES WILL BE MADE AND SOME PEOPLE THINK WILL MAKE THAT THEY WILL MAKE GREAT FORTUNE THEY WON’T BE ABLE TO.>>THERE ARE A LOT OF SUBURBAN RETAILERS SHOPPING CENTERS. ONE OF THESE MOVES OUT OR A MEN’S WEARHOUSE IS IN TROUBLE, TOYS “R” US, THEY MOVE OUT OF THE PROPERTY. SOME OF THE DEALERS CHANGE OVER THERE AND THEN YOU HAVE TO BET YOUR HORSE. YOU CAN BE HAPPY THAT IN YOUR HORSE ON TARGET, NOT ON SEARS TODAY. IT DEPENDS ON THE TYPE OF PROPERTY. ANOTHER ASSET WHICH IS HIGHLY EVOLVED TOWARDS THE HOSPITALITY INDUSTRY. YOU HAVE A LARGE PORTION. YOU HAVE SOME HOSPITALITY. AND I BELIEVE YOU DO AS WELL.>>WE’RE DOING HOSPITALITY AS WELL.>>YOU GOT IT IN THE BOROUGHS.>>A VERY DEVELOPED MARKETS. WE HAVE HAD HOSPITALITY THAT ARE UNFLAGGED. WE EXITED THE POSITION IN WILLIAMSBURG WHICH WAS A SUCCESSFUL EXIT. THAT IS HARDER AND I THINK WE ARE ALWAYS LOOKING FOR NEW OPPORTUNITY. THERE IS A LACK OF CAPITAL COMING INTO HOSPITALITY. ESPECIALLY HOSPITALITY CONSTRUCTION FINANCING. WE ARE VERY CAREFUL, BUT WE ARE LOOKING AT IT.>>THE HOSPITALITY IS BEING AFFECTED BY THE AIRBNB BECAUSE YOU ARE TAKING SUCH A LARGE NUMBER.>>I WOULD SAY IT’S MORE THAN THAT. IF YOU’RE SPEAKING ABOUT NEW YORK, YOU HAVE HAD 16,000 NEW ROOMS AND TO THE PAST FEW YEARS. I THINK WE ARE DOING A GOOD JOB OF ABSORBING THOSE, BUT THAT IS EFFECTIVE AND WE HAVE BEEN CAUTIOUS ON OUR CALLS.>>THE 62 MILLION VISITORS, THERE ARE NEEDS FOR THAT.>>AS PETER WAS ALLUDING TO, THE ABSORPTION IS FAIRLY EFFECTIVE ON OCCUPANCY STANDPOINT. THE RATE IS BEING MOVED.>>AIRBNB, OTHER HOTELS NEED TO BE STABILIZED, ETC.>>WE ARE CAREFUL OF HOSPITALITY ASSETS WHICH HAVE A LARGE PERCENTAGE OF THEIR REVENUE COMING FROM FOOD AND BEVERAGE. WE HAVE SEEN INTERESTING PROJECT. A DISPROPORTIONATE AMOUNT OF PRODUCTIONS ARE COMING FROM REVENUE.>>WHEN YOU ARE IN FOOD AND BEVERAGE, YOU’RE IN THE RESTAURANT BUSINESS. AND A RESTAURANT BUSINESS WITH A 50% FAILURE RATE.>>THAT’S HOW SPONSORS ARE MAKING THEIR NUMBERS. THEY ARE PROJECTING REVENUE. YOU DO HAVE TO BE VERY CAUTIOUS. WE ARE IN THE PROCESS OF CLOSING JUST THE EAST COAST WE ARE CLOSING THREE HOTEL LOANS. YOU HAVE TO PICK AND CHOOSE AND BE CAREFUL ABOUT BASIS. YOU HAVE TO MAKE SURE YOU’RE DEALING WITH THE RIGHT SPONSOR.>>THERE’S A MISCONCEPTION ABOUT CONDOS. EVEN IF YOU TAKE INTO CONSIDERATION GARY BARNETT’S NEW PROPERTY IN DOWNTOWN BROOKLYN, IT IS DOING WELL BECAUSE IT HAS 25-YEAR TAX ABATEMENT. ALSO THERE IS A LOT OF RENTAL APARTMENTS IN DOWNTOWN BROOKLYN AND VERY FEW CONDOS. HOW DO YOU LOOK AT THE CONDO MARKET TODAY?>>IT IS VERY BASIS DRIVEN. THERE IS A LACK OF LIQUIDITY AROUND CONSTRUCTION RELATED FINANCING IN CONDOS. ONE THING WE’VE BEEN ABLE TO DO IS PROVIDE A WHOLE LOAN TO DEVELOPERS WHERE WE PROVIDE THE SENIOR, A LOT OF LENDERS ARE TRYING TO PIECE IT TOGETHER INTEGRATES A LOT OF COMPLEXITY AND UNCERTAINTY. WE HAVE BEEN ABLE TO DO A NUMBER OF DEALS THAT FIT THAT PROFILE RECENTLY.>>THIS SPEAKS TO OUR PORTFOLIO, WE HAVE A FAIR AMOUNT OF CONSTRUCTION, 30% OF OUR BOOK. WE ARE ONE-STOP SHOP IN TERMS OF BEING ABLE TO PROVIDE THE HOLISTIC SOLUTION. OUR AVERAGE CONDOMINIUM LOAN IS IN EXCESS OF $200 MILLION AND FAR GREATER. THE BASIS IS EVERYTHING. WE LIKE COMMODITIZED PRODUCT, VERSUS THE ULTRA WEALTHY PRODUCTS THAT WILL HAVE A NUMBER OF TOUCH POINTS AS THE CYCLE MATURES AND THERE IS COST AND SO WE LARGELY AVOID THAT GIVEN THE PRICING OF THAT WHERE WE CAN LOOK AT A DOWNSIDE AS A RENTAL FALLBACK IF THAT NEEDS TO HAPPEN. ALSO WE ARE DEALING WITH INSTITUTIONAL BORROWERS WHO HAVE DEVELOPMENT EXPERIENCE WHO CAN MANAGE THE PROPERTY. ALSO WE WILL CREATE A MILESTONE WHERE WE NEED TO DESPITE THEIR EQUITY OBJECTIVES RETURN ON EQUITY OBJECTIVES, IF WE NEED TO PRODUCT TO RIGHT-SIZE THE LOAN AT LOWER THAN IDEAL PRICES. WE CAN FORCE THAT DISCUSSION TO PROTECT OUR LOAN.>>I THINK YOU HAVE A LENDER BASIS DRIVEN VIEW AND THEN YOU LOOK AT YOUR SPONSORS BASIS. SOMETIMES THE LENDER IS GREAT BUT THE SPONSOR WILL FAIL AND YOU HAVE A CHOICE OF GOING FORWARD AND SEEING IF THE SPONSOR WILL PREVAIL AT MAKING SURE YOU HAVE LEVERAGE SO THEY START SELLING BELOW BASIS OR YOU PASS ON THE PROJECT. SOME WE HAVE GONE FORWARD IN AREAS WHERE WE FEEL COMFORTABLE BUT WE HAVE HAD ONE THAT MUST SELL AT X PER CENT. WE THINK THAT’S VERY IMPORTANT. WE ARE STILL DOING CONDOS.>>WE DO THE SAME THING WITH RESPECT TO HOW WE STRUCTURE THE LOANS. WE ARE NOT ADVERSE TO CONDOS. IT IS THE SAME ANSWER WITH RESPECT TO ALL THE PRODUCTS. WE ARE ALL DOING HOTELS BUT YOU HAVE TO BE CAREFUL. SAME THING WITH CONDOS.>>EMERGING NEIGHBORHOODS. PEOPLE ARE SAYING, WE HAVE FERRIES NOW. IF YOU ARE NOT RIGHT NEAR IT, YOU HAVE A TRAIN THAT WILL TAKE YOU TWO HOURS TO GET YOU.>>DEPENDS ON WHAT YOUR DEFINITION OF EMERGING NEIGHBORHOOD. IF IT’S TRULY AN EMERGING NEIGHBORHOOD, IT’S TOUGH BECAUSE YOU REALLY ARE SPECULATING.>>THEY CAN MAKE A LOT OF MONEY AND MAKE SHARP SHOTS, WE ARE IN MARKETS IN 24/7 CITIES WHERE THE LIQUIDITY WANTS TO BE. WHERE THE DEMAND IS AND RETURNS AFTER A CYCLE AND YOU HAVE THE SOPHISTICATION LEVEL OF THE SPONSORS.>>THE LARGEST CITY IN THE STATE OF NEW JERSEY IS NEWARK. THERE ARE CERTAIN THINGS TAKING PLACE IN NEWARK, BUT THE IRONY IS THAT THEY JUST HAD THE TOPPING OFF CEREMONY FOR RECTOR STREET. IT STARTED ABOUT SEVEN YEARS AGO AND IT IS TAKEN IN THAT LONG TO BUILD THE FIRST NEW RESIDENTIAL RENTAL BUILDING IN 50 YEARS.>>AND NOW IT HAS EMERGED.>>THE QUESTION IS HOW DO YOU LOOK AT CERTAIN DIFFERENT MARKETS LIKE NEWARK OR JERSEY CITY, LONG ISLAND CITY WHICH WE WERE TALKING ABOUT WHICH HAVE AN ENORMOUS NUMBER OF HOTELS AND RENTAL APARTMENT BUILDINGS.>>THAT WAS AN EXAMPLE WHERE THERE WERE TONS OF RENTALS BUT VERY LITTLE CONDO PRODUCT. CONDOS ARE MOVING WELL BECAUSE THERE ARE SO LITTLE PRODUCT OUT THERE. BROOKLYN IN GENERAL ALSO HAD A LACK OF CONDOS RELATIVE TO RENTALS. THERE ARE AREAS. MANHATTAN MAY HAVE HAD CONDOS IN CERTAIN MARKETS BUT THERE ARE POCKETS OF OPPORTUNITY IN THE BOROUGHS.>>WE WERE IN LONG ISLAND CITY ON A LARGE DEVELOPMENT. THERE WAS A LACK OF CONDOS AND THEN WITHIN 12 MONTHS THERE WERE NUMEROUS CONDO PROJECTS COMING IN AT THE SAME TIME AND WE WERE IN A DEVELOPMENT LOAN AND CONSTRUCTION LENDERS BECAME MORE CAREFUL BECAUSE THEY WERE ALL COMING TO MARKET TO THE SAME TIME IN THE PRICES WERE JUST UNDER MANHATTAN AND MANHATTAN STARTED DROPPING. THE OPPORTUNITY IN LONG ISLAND CITY WENT BACK TO RENTAL. A NUMBER OF PROJECTS THAT ARE CONDO DEVELOPMENT PLANS ARE NOT GETTING FINANCED.>>I THINK YOU WILL SEE A LOT OF PAIN IN LONG ISLAND CITY. IF PEOPLE ARE GIVEN THEIR CONCESSIONS ON PRICING, THEY WOULD MUCH RATHER LIVE IN MANHATTAN AND I THINK YOU ARE AWASH IN A LOT OF SUPPLY AND HAVING THERE WILL BE POCKETS OF DISTRESS DESPITE OVERTIME GIVEN DEMOGRAPHICS, PEOPLE WILL SHIFT AND THAT WILL BE ABSORBED. UNDERCAPITALIZED SPONSORS WHO CAN’T AFFORD TO MAKE THE CONCESSIONS THAT NEED TO BE MADE TO FILL THOSE UNITS, I THINK YOU WILL SEE SOME DISTRESS AS THE CYCLE MATURES.>>HOW DO YOU SEE THE SUBURBAN OFFICE MARKET? YOU DID A DEAL RECENTLY IN STAMFORD. I’M TALKING ABOUT IN GENERAL ABOUT THE SUBURBAN OFFICE MARKET. IN 30 YEARS, WESTCHESTER HAD NOT SEEN RENT INCREASES. IF YOUR BASIS IS WHAT YOU’RE SAYING IS FINE, HOW DO YOU LOOK AT IT? A LOT OF PEOPLE LOOKING AT THE BASIS AND AT THE KEY TODAY. TRANSIT ORIENTED DEVELOPMENT IS IMPORTANT. IF IT COULD BE REPURPOSED, TAKING THE OFFICE BUILDING AND MAKING IT A RESIDENTIAL THING WHICH HAS HAPPENED QUITE A BIT IN WESTCHESTER. IT WAS WRITTEN UP IN THE WALL STREET JOURNAL. IF YOU ARE TAKING CERTAIN MARKETS, THE OFFICE MARKET IS –>>YOU HAVE TO BE CAREFUL. YOU HAVE TO GET VERY SMART IN THAT MARKET. THAT MARKET MOVES DIFFERENTLY THAN THE NEW YORK MARKETS WHICH WE ALL LIVE AND BREATHE AND ARE ON TOP OF.>>NOW YOU OPERATE IN LONG ISLAND.>>THAT IS DIFFERENT.>>HOW DO YOU LOOK AT THAT MARKET? BECAUSE IT’S DIFFERENT ONE.>>WE HAVE AN OFFICE THAT ALLOWED US TO DO LARGE TOWNHOME DEVELOPMENT NEXT TO OUR OFFICE. WE WERE WATCHING THAT MARKET. WHEN I WAS SPEAKING ABOUT THE SUBURBAN OFFICE, GENERICALLY, THOSE ARE MARKETS THAT MOVE NOT NECESSARILY CONSISTENTLY WITH THE METRO MARKET WE ARE SPENDING TIME IN. IN ROSALYN, WE KNEW THERE WAS A NEED FOR EMPTY-NESTERS OR YOUNG COUPLES COMING FROM THE CITY FOR LIVING THAT WAS REALLY URBAN LIVING THAT DID NOT EXIST BEFORE AND THAT PROJECT HAS BEEN SUCCESSFUL. WE TOOK AN EQUITY STAKE AS WELL. FOR US TO LEND ON A PROJECT LIKE THAT WOULD BE VERY CHALLENGING BECAUSE THERE WAS NOTHING ELSE IN THE MARKET LIKE THAT. WE BELIEVED IN THE THESIS AND SPONSOR IN THE FIRST — WERE LARGELY SOLD OUT.>>FROM A MACRO PERSPECTIVE, VERY NEGATIVE VIEW IF YOU LOOK AT DEMOGRAPHIC TRENDS. MILLENNIAL WORKFORCE IS LIVING AND WORKING IN CITIES. WHEN YOU LOOK AT MICRO MARKETS. WE GOT PAID OFF BY A LARGE LOAN WE DID IN GREENSBORO AND THE SILVER LINING NORTHERN VIRGINIA. SPONSORS PROVEN EXECUTION OF LEASING IT. YOU HAVE GOVERNMENT DEFENSE, SPENDING, THAT IS BEEN FILLING THOSE BUILDINGS. PLUS IT IS IN THE PER DIEM OR THE — GOVERNMENT AGENCIES CAN LEASE THAT AND IT WILL BE A VERY SOLID BUILDING WITH TRANSIT ORIENTED DEVELOPMENT CHARACTERISTICS. THAT IS A TEXTBOOK WHERE PROVEN SPONSOR, PROVEN LOCATION CAN UNDERCUT THE MARKET GIVEN THE SPONSORS BASIS. THAT’S A GREAT SUBURBAN OFFICE STORY. TALKING ABOUT MACRO TRENDS, SUBURBAN OFFICE HAS NOT RECOVERED FROM PRIOR CYCLE PRICING RELATIVE TO THE PRIOR CYCLE.>>I WAS JOKING WITH A FLORIDIAN BEFORE SINCE HE COMMUTES ON THE PLANE. ALL OF YOU HAVE EXPOSURE IN FLORIDA EXCEPT YOU. HOW DO YOU FEEL ABOUT THE FLORIDA MARKET?>>SAME WAY I FEEL ABOUT ALL THESE MARKETS. THERE ARE SUBMARKETS, MICRO MARKETS. THERE ARE DEALS THAT MAKE SENSE. ALL OF US LEND ON THE BASIS. I DON’T THINK YOU CAN BROADEN BRUSH — YOU CAN BROAD BRUSH FOR SURE. BUT WE PURSUE A VERY SMALL PERCENTAGE. MY POINT TO YOU IS WHEN YOU SAY HOW I FEEL ABOUT FLORIDA, WE TURNED DOWN A LOT OF DEALS IN FLORIDA BUT WE ARE DOING THEM. IT DEPENDS ON THE SPECIFIC DEAL. THERE ARE PARTS YOU HAVE TO BE CAREFUL ABOUT. THE CONDO MARKET IN MIAMI IS FAIRLY FROTHY. IT’S HARD TO FIND A DEAL IN MIAMI WHERE THERE IS A BASIS THAT MAKES SENSE.>>WE JUST GOT PAID OFF TWO LARGE PROJECTS, BUT WE ENTERED INTO BOCA BUT WE LIKE THE GROWTH PROFILE AND TRAJECTORY DEMOGRAPHICALLY. THE NEW TAX LAW PROMULGATES THINGS FOR A MARKET LIKE FLORIDA. IT IS PROJECT SPONSOR SPECIFIC THAT REALLY THE REAL ESTATE LOCATIONS.>>A LOT OF BANKS PULLED OUT OF THE MARKETS. THERE IS AN OPPORTUNITY AND BECOMING 24/7 MARKET IN TERMS OF MIAMI. THERE SEEMS LIKE IS A LOT MORE MOMENTUM BECAUSE AS A LOCAL MARKET IN GENERAL.>>THAT’S A GOOD POINT. THERE ARE SOME MARKET LIKE FORT LAUDERDALE THAT ARE VERY POSITIVE TRENDS. YOU COULD ALSO GET HURT.>>IN GENERAL I WOULD SAY THERE IS MONEY OUT THERE BUT THE KEY IS BASIS DRIVEN, SPONSOR DRIVEN AND ALSO RISK REWARD. IT IS A GOOD THING WE HAVE THE ALTERNATIVE LENDERS BECAUSE THAT’S THE MAJOR PLAYERS TODAY IN THE MARKET. I WOULD LIKE TO THANK JOSH, ROBYN, PETER AND TONY. SEE YOU NEXT WEEK. ♪ [THEME MUSIC] ♪